Context
For the already available beneficial impact of liquidity on cost of funds, RBI’s stance of no cut would have seemed harder on the economy
Highlights of the bimonthly policy
- Accommodative to neutral: The tweaking of stance to “neutral” is this policy’s headline and is being seen as reducing the chances of a future rate cut
- RBI’s formula: The other interesting highlight is RBI’s formula for transmission of policy rate to banks which lays stress on bank NPA resolution, recapitalization of banks and making small savings rates responsive to Government market borrowing rates
Liquidity
Author states that on the liquidity front, India has witnessed a sea of liquidity at banks courtesy DeMo, taking the excess liquidity in the system to a staggering 2 lac crappx
